Pyramid Comment

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Thursday, May 03, 2012

Loan Trap

The trap can be illustrated by considering a salary below the 'official' average wage, yet still firmly within the trap: £26,000.


  • Remember that interest is continually applied every month regardless of any payment. This is an inexorable charge. If the salary creeps above this value then a forced payment is made.
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Should I elect to repay?

  • This assumes salary falls below the threshhold of £21,000 (current level as at March 2012)
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Student loans
(2012/2013)


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Paying it ALL back

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 Your income per yearInterest rate on your loan
 while you're studyingrate of inflation +3%
£21,000 or lessrate of inflation - no repayment made, but interest is added on
£21,000 - £41,000varies between the rate of inflation and the rate of
inflation +3% depending on your income
£41,000 or more rate of inflation +3%. This is the same as before graduation and while STILL studying

Remember too that the higher-rated RPI is used and NOT the CPI

Your monthly payments

You pay 9% of your residual income that exceeds the threshold of £21,000 a year.
This has the 'benefit' (for government - DA) of still attracting the highest yield in interest
when actually making payments.

If your course starts in September 2012 and you finish in June 2015 and in September 2015 
you’re earning £25,000 (£4,000 over the £21,000 threshold), you will be forced to pay 9%
of £4,000 which is £360 (annual charge). This means from April 2016 you pay back £30/month.
  • The £21,000 alluded to is the level as of March 2012. The actual level at April 2016, and
more than 4 years into the future, is completely unknowable! DA

 Your income per year  Monthly repayments
 £21,000 and underno repayments (monthly interest is continually applied)
 £25,000  £30
 £30,000  £67.50
 £40,000  £142.50
 £50,000  £217.50
 £60,000 £292.50
Notice how a small increase (£25,000 to £30,000 = 20%) results in over a 100% increase in
repayments (£30 to £67.50)








  • Don't overlook the (VERY BIG) elephant in the room: interest is applied from the 1st day of the 1st year of any loan, which by definition is at least 3 years before graduation. Into a 2nd year of a loan attracts interest on that 1st year. During the 3rd year, interest is applied to the 1st and 2nd parts of the total loan. And any chance of a full-time career to fund the repayment. If such a career can be established.
Nothing up front

posted by Louis Brothnias @ 2:57 am